By Adria Cimino
Sept. 16 (Bloomberg) -- Stocks in Europe and Asia fell for a second day and U.S. index futures retreated after credit- rating downgrades ofAmerican International Group Inc.threatened efforts to keep the company afloat.
UBS AG, which took more than $43 billion of subprime-related writedowns, lost 9 percent, andMitsubishi UFJ Financial Group Inc.slumped 8.5 percent on concern that the seizure in credit markets will worsen and hurt the global economy. Rio Tinto Group sank 4 percent and BG Group Plc declined 4.1 percent as commodity prices retreated, while Porsche SE dropped 2.5 percent after an industry group said the slump in European car sales deepened.
``Things can't get much worse,'' said Roland Lescure, who manages the equivalent of $128 billion as chief investment officer of Groupama Asset Management in Paris. ``We're at the heart of the torment right now. The downgrade of credit ratings is bad news, but inevitable.''
The MSCI World Index lost 0.9 percent to 1,225.7 at 9:03 a.m. in London, bringing this year's decline to 23 percent. More than $16 trillion has been erased from global equities this year as the biggest surge in mortgage defaults in at least three decades sparked $514 billion in credit losses and writedowns.
The dollar fell against the yen and was little changed against the euro.
Traders increased bets the U.S. Federal Reserve may cut borrowing costs today. Futures traders put the odds of a quarter point reduction in interest rates at 68 percent, up from zero a week ago.
Europe, Asia
Europe's Dow Jones Stoxx 600 Index declined 1.5 percent. The MSCI Asia Pacific Index decreased 3.8 percent as trading resumed in Japan, China, Hong Kong and South Korea after markets were shut for public holidays yesterday.
Futures on the Standard & Poor's 500 Index fell 0.3 percent.
UBS, the largest Swiss bank, lost 9 percent 18.29 francs. Natixis SA, France's fourth-biggest bank, slumped 6 percent to 2.80 euros.
Barclays Plc, the U.K.'s third-largest bank, retreated 6.1 percent to 296.75 pence. The bank said today it's in talks with Lehman on a possible purchase of certain assets. The bank said it would make a further announcement in due course.
Mitsubishi UFJ fell 8.5 percent to 786 yen, while Sumitomo Mitsui Financial Group Inc. declined 11 percent to 612,000 yen.
AIG Ratings
AIG's credit ratings were downgraded by S&P and Moody's, threatening efforts to raise emergency funds to keep the company afloat. S&P lowered AIG's long-term counterparty rating three grades to A- from AA-, citing a ``combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.''
The ratings assessor also lowered AIG's short-term counterparty credit rating and cut its counterparty credit and financial strength ratings on most of AIG's insurance operating subsidiaries. AIG's senior unsecured debt rating was downgraded by Moody's to A2 from Aa3.
AIG added 87 cents to $5.63 in Germany. The shares tumbled 61 percent yesterday in New York trading.
Washington Mutual Inc., the biggest U.S. savings and loan, had its credit rating cut to junk by S&P because of the deteriorating housing market.
Stocks slid yesterday in the U.S., pushing the Standard & Poor's 500 Index to the steepest drop since the September 2001 terrorist attacks, as Lehman Brothers Holdings Inc.'s bankruptcy increased speculation that credit-market losses will worsen.
``Lehman is the latest episode in a series of dark events,'' said Jean Bruneau, head of sales trading at Societe Generale SA in Paris. ``In a healthy economic system, there is confidence -- that confidence is gone.''
Rio Tinto, BG
Rio Tinto, the world's second-largest iron-ore producer, decreased 4 percent to 4,025 pence. BG Group, the U.K.'s third- biggest oil and natural-gas producer, slumped 4.1 percent to 1,051 pence. Total SA, Europe's largest oil refiner, lost 1.9 percent to 42.56 euros.
Copper declined for a second day in Asia. Gold and silver also fell.
Crude oil tumbled below $92 a barrel to a seven-month low and gasoline fell on concern that turmoil on Wall Street may weaken the global economy and reduce demand for fuels and raw materials. The contract for October delivery fell as much as 4.4 percent to $91.54 on the New York Mercantile Exchange.
Porsche, the maker of the 911 sports car, lost 2.5 percent to 82.29 euros. PSA Peugeot Citroen, Europe's second-biggest carmaker, retreated 1.3 percent to 30.65 euros.
European car sales declined 16 percent last month as higher fuel prices and falling consumer confidence hit demand for models from General Motors Corp. and Toyota Motor Corp.
Registrations fell to 805,839 from 955,318 a year earlier, the Brussels-based European Automobile Manufacturers' Association said today in a statement. Sales for the first eight months dropped 3.9 percent, accelerating from a 2.8 percent contraction through July.
To contact the reporter on this story: Adria Cimino in Paris atacimino1@bloomberg.net.
Last Updated: September 16, 2008 04:14 EDT
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